No funny business here, say insurers

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Australia's big listed insurers are confident they will not be
dragged into a potential investigation of General Re by the
Australian Prudential Regulation Authority.

APRA has given General Re two weeks to show why it should not
begin investigating its past financial reinsurance deals.

Details of APRA's probe emerged this week in the annual report
of General Re's parent company, Berkshire Hathaway, run by US
billionaire Warren Buffett.

The regulator said if the investigation went ahead, it could be
broadened to include other parties in the financial reinsurance
deals.

But QBE, Insurance Australia Group and Promina all said
yesterday they had not engaged in any reinsurance deals that would
warrant an investigation.

"I believe that anything there was to come out, has already come
out," said Raymond Jones, head of QBE's Australian operations.

"QBE never entered into a financial reinsurance contract. We
were totally clean."

General Re has been on APRA's hit list since it emerged during
the HIH royal commission in 2002 that it had helped inflate FAI's
profit by more than $28 million - through a loan disguised as a
reinsurance contract.

The regulator is also investigating a financial reinsurance deal
General Re did with Zurich Financial Services.

"APRA has every right to be concerned and to seek a solid
declaration from General Re that there has been no other funny
business," Mr Jones said.

"But I don't think it will end up with a full-scale inquiry. The
industry hopes it doesn't because we have learnt from the HIH and
now we need to get on with life."

During the HIH royal commission, APRA wrote to all insurers
asking for information on any financial reinsurance arrangements
they had in place.

"Financial reinsurance was hot at one stage, with a number of
brokers talking about these sort of things, but we never took an
interest."

A spokesman for IAG said all of its "current and past
reinsurance contracts involve genuine risk transfer and have been
disclosed to and reviewed by the regulator".

But industry watchers will follow the General Re probe closely.
The reinsurer has also been targeted by offshore regulators.

In February, the US Securities and Exchange Commission
subpoenaed American International Group, the world's biggest
insurer, over a policy it appears to have bought from General Re in
late 2000 and early 2001. It is alleged the policy allowed AIG to
claim reserves that were higher than they actually were.